Today the Supreme
Court granted certiorari in six cases, four of which are of potential interest
to the business community. Amicus briefs in support of the petitioners are due
on Thursday, January 11, 2001, and amicus briefs in support of the respondents
are due on Monday, February 12, 2001. We also report on Mayer, Brown &
Platt's recent success in invalidating, on state-law free speech grounds, a
compulsory state agricultural marketing program similar to the federal program
that will be assessed for consistency with the First Amendment in the fourth
case summarized below. Any questions about these cases should be directed to
Donald Falk (202-263-3245), Eileen Penner (202-263-3242) or Miriam Nemetz
(202-263-3253) in our Washington office.

1.
Internal Revenue Code  Carryback of Liability Losses. Section 172 of the
Internal Revenue Code allows corporations to carry back net operating losses to
offset income in any of the three years preceding the loss year, and allows
losses due to liabilities "aris[ing] under a Federal or State law," including
product liability losses, to be carried back ten years. See 26 U.S.C. §§
172(b)(1), (c), (j). The Supreme Court granted certiorari in United Dominion
Industries, Inc. v. United States, No. 00-157, to decide whether an affiliated
group of corporations with a consolidated net operating loss attributable in
part to product liability expenses can take advantage of the ten-year carryback
by treating product liability expenses as expenses of the group, even though the
individual group members that incurred the product liability expenses would have
had no net losses to carry back if they had filed separate returns.

United Dominion Industries is the parent
of an affiliated group of 26 corporations that filed consolidated tax returns
for tax years 1983 through 1986. During those years, five of the group members
incurred product liability expenses totaling $1,618,306. Had the five group
members filed individual tax returns, their product liability expenses would not
have yielded a "product liability loss" that could be carried back ten years,
because each group member's separate income exceeded its expenses each year. The
remaining United Dominion group members did not have any liability expenses, but
they did have other large expenses that yielded a consolidated net operating
loss for United Dominion each year. United Dominion concluded that the Code and
the pertinent regulations allowed it to characterize a portion of its
consolidated net operating loss (which could be carried back three years) as a
consolidated product liability loss (which could be carried back ten years) to
the extent of the total product liability expenses of the group. United Dominion
attempted to carry back this consolidated product liability loss to tax years
1973 through 1976  a period during which the group was profitable  and sought
a refund of taxes paid during that period.

After the IRS denied the refund, United
Dominion brought this action. The district court granted summary judgment in
favor of United Dominion.

The Fourth Circuit reversed. 208 F.3d 452
(2000). The court of appeals acknowledged that the Code and the relevant IRS
regulations are silent as to whether product liability losses are to be
determined on a per-member basis or on a consolidated basis. See id. at 456. The
court observed, however, that the regulations governing consolidated tax returns
provide for the blending of group members' net operating losses, but do not
refer to the consolidation of product liability expenses. In the Fourth
Circuit's view, that omission "makes clear that blending those expenses is not
permitted, i.e., that a comparison of the group members' aggregated product
liability expenses to the consolidated net operating losses in order to derive a
consolidated product liability loss' is not intended." Id. at 458.

The Fourth Circuit's decision directly
conflicts with Intermet Corp. v. Commissioner, 209
F.3d 901 (6th Cir. 2000). In Intermet, the Sixth Circuit concluded that the
issue was properly resolved by Treasury Regulation § 1.1502-80(a), which
provides that "[t]he Internal Revenue Code, or other law, shall be applicable to
the [consolidated] group to the extent the regulations do not exclude its
application." See 209 F.3d at 905. Because the regulations governing the
preparation of consolidated returns do not address the treatment of liability
expenses, the court held that an affiliated group of corporations is entitled to
be treated as a single taxpayer for purposes of the ten-year
carryback.

Although no other courts have
addressed it, this issue has been raised in more than 100 tax cases pending at
the administrative level. This case is of substantial interest to affiliated
groups of corporations that file consolidated tax returns, particularly those
that have group members in the manufacturing sector with potential exposure to
product liability litigation.

2.
ERISA  Availability of Federal Forum to Enforce Reimbursement
Clauses. ERISA creates a federal cause of action for participants,
beneficiaries, and fiduciaries to "obtain * * * appropriate equitable relief * *
* to enforce any provisions of * * * the terms of the [ERISA] plan." 29 U.S.C. §
1132(a)(3). The Supreme Court granted certiorari in Reynolds Metals Co. v.
Ellis, No. 99-1787, to decide whether an ERISA fiduciary's lawsuit to obtain
reimbursement from an employee for sums received from a liable third party is a
suit for "equitable" relief within the meaning of Section 1132(a)(3), and hence
one over which the federal courts have jurisdiction.

Robert Ellis was an employee of Reynolds
Metal Company and a beneficiary in its group medical plan ("the Plan"). After
Ellis was seriously injured in an auto accident in 1994, the Plan paid
$561,145.21 in benefits to Ellis and his health care providers. The Plan
contained a contractual reimbursement provision requiring beneficiaries to
reimburse the Plan from any payments received from third parties for health care
expenses. In 1997, Ellis settled a claim against the third parties responsible
for his accident, receiving an amount in excess of the benefits paid to him by
the Plan. Ellis, however, refused to reimburse the Plan.

Reynolds Metal sued Ellis in federal
district court, seeking an injunction to compel him to comply with the
contractual reimbursement provision of the Plan and asserting federal subject
matter jurisdiction under Section 1132(a)(3). The district court dismissed the
case under the authority of FMC Medical Plan v. Owens, 122
F.3d 1258 (9th Cir. 1997), in which the Ninth Circuit had held that actions
brought by fiduciaries to enforce reimbursement clauses contained in ERISA plans
are not actions for restitution and accordingly are not "equitable" within the
meaning of Section 1132(a)(3).

The Ninth Circuit affirmed. 202
F.3d 1246 (2000). The panel concluded that it was bound to follow Owens. Id.
at 1248. In the Ninth Circuit's view, Owens did not foreclose all claims for
monetary relief under Section 1132(a)(3); accordingly, the court perceived no
conflict between Owens and the Supreme Court's earlier decisions in Mertens v.
Hewitt Associates, 508
U.S. 248, 256 (1993) and Varity Corp. v. Howe, 516
U.S. 489, 495 (1996), which had suggested that Section 1132(a)(3) authorized
suits for all categories of relief that were typically available in equity,
including monetary equitable remedies such as restitution. 202 F.3d at
1248-1249.

This case is of significant interest to
all employers that provide group medical plans, or other ERISA benefit plans, in
which similar subrogation provisions might help contain costs.

3.Indian Law 
Tribal Jurisdiction Over Nonmembers  Taxation of Activities on Nonmember Lands
Within Reservations. In Montana v. United States, 450
U.S. 544 (1981), the Supreme Court held that, in general, an Indian tribe
cannot exercise civil jurisdiction over the activities of nonmembers on lands
owned in fee by nonmembers but located within the boundaries of the tribe's
reservation. An exception to that general rule permits a tribe to "regulate,
through taxation, licensing, or other means, the activities of nonmembers who
enter consensual relationships with the tribe or its members, through commercial
dealing, contracts, leases, or other arrangements." Id. at 565. The Supreme
Court granted certiorari in Atkinson Trading Co. v. Shirley, No. 00-454, to
decide whether the "consensual relationship" exception supports the imposition
of a tribal Hotel Occupancy Tax ("hotel tax") on nonmember guests of a hotel
located on land owned in fee by a nonmember but located entirely within the
boundaries of an Indian reservation.

Petitioner Atkinson Trading Company is a
non-Indian New Mexico corporation that operates a hotel on land owned in fee by
Atkinson but completely surrounded by Navajo Nation Reservation trust lands. In
1992, the Navajo Nation Council enacted an 8% hotel tax on charges for any hotel
room located within the Navajo Nation. Following an unsuccessful challenge to
the hotel tax in the Navajo Supreme Court, Atkinson filed an action in federal
district court requesting a declaratory judgment that the Nation lacked
authority to impose its hotel tax on Atkinson's nonmember guests.

The district court granted summary
judgment in favor of the Nation in an unpublished opinion holding that the hotel
tax was authorized by Montana's consensual relationship exception. The court
acknowledged that there was no explicit consensual relationship between the
Nation and Atkinson's nonmember guests, but found that the guests entered into
an implied consensual relationship by placing themselves in a position where
they might need assistance from tribal police, fire, or other emergency
personnel. In determining that this activity sufficed to support the tax, the
district court relied on Merrion v. Jicarilla Apache Indian Tribe, 455
U.S. 130 (1982). In that case, the Supreme Court upheld a tribal tax on oil
and gas production on tribal land on the ground that the authority to tax was
"an essential attribute of Indian sovereignty" (id. at 137), explaining that the
exercise of that authority over nonmembers has its strongest justification when
"the [nonmember] taxpayer is the recipient of tribal services" (id. at 138
(internal quotation marks omitted)).

A divided panel of the United States
Court of Appeals for the Tenth Circuit affirmed. 210 F.3d 1247
(2000). Rejecting Atkinson's contention that the district court erred in
applying Merrion's reasoning to a case involving non-tribal lands, the court of
appeals held that "[b]ecause the power to tax derives from the inherent powers
of the tribe, not from the tribe's power to exclude, the status of the land
involved as fee land or tribal land is simply one of the factors a court should
consider when determining whether a tax on nonmember activity on the reservation
falls within the civil jurisdiction of the tribe." Id. at 1258. In the Tenth
Circuit's view, the primary considerations affecting tribal jurisdiction over
nonmembers on the reservation  whether on tribal or non-tribal lands  are "(1)
the status and conduct of the nonmembers and (2) the nature of the inherent
sovereign powers the tribe is attempting to exercise, its interests, and the
impact that the exercise of the tribe's powers has upon the nonmember interests
involved." Id. at 1261.

Judge Briscoe dissented on the ground
that the majority had improperly blended the rule established for the exercise
of tribal jurisdiction over nonmember conduct on nonmember fee lands (Montana)
with that for the exercise of tribal jurisdiction over nonmember conduct on
tribal lands (Merrion). 210 F.3d at 1269. The resulting analysis, according to
the dissent, "subverts the question of whether a consensual relationship exists
between the nonmembers and the tribe and replaces it with an entirely different
inquiry that * * * makes it substantially easier for a tribe to establish
jurisdiction over a nonmember." Ibid.

The Tenth Circuit's decision conflicts
with Big Horn County Electric Cooperative, Inc. v. Adams, 219
F.3d 944 (9th Cir. 2000). The conflict is especially significant because
many Indian reservations are located within the Ninth and Tenth
Circuits.

This case is of interest to all
non-Indian businesses operating on non-Indian fee land within the boundaries of
a reservation.

4. First Amendment 
Commercial Speech  Mandatory Assessments for Agricultural Advertising
Programs. In Glickman v. Wileman Brothers & Elliott, Inc., 521
U.S. 457 (1997), the Supreme Court divided 5-4 in upholding against First
Amendment challenge Department of Agriculture regulations that compelled
California tree fruit growers to contribute financially to joint generic product
advertising. The Court reasoned in part that those regulations were part of a
"broader collective enterprise in which [the growers'] freedom to act
independently is already [heavily] constrained by [a] regulatory scheme." Id. at
469. The Supreme Court granted certiorari in United States v. United Foods,
Inc., No. 00-276, to decide whether similar mandatory assessments imposed by
Department of Agriculture on the mushroom industry  which is not heavily
regulated  violate the First Amendment.

The Mushroom Promotion, Research, and
Consumer Information Act of 1990 ("the Mushroom Act"), 7 U.S.C. §§ 6101 6112,
authorizes the Secretary of Agriculture to issue an order establishing a
"Mushroom Council" that would, among other things, propose to the Secretary
"projects of mushroom promotion, research, consumer information, and industry
information." Id. § 6104(c)(4). Pursuant to the Mushroom Act, the Secretary
promulgated an order in 1993 ("the Mushroom Order") establishing a Mushroom
Council and imposing mandatory assessments on members of the mushroom industry
to pay for the Council's activities, including advertising promoting mushroom
consumption. See 7 C.F.R. §§ 1209.17, 1209.30-1209.40, 1209.51.

United Foods, Inc. is a mushroom
producer that has refused since 1996 to pay its assessments under the Mushroom
Act and the Mushroom Order. United Foods sued the Department of Agriculture in
federal district court, contending that the mandatory assessments imposed under
the Mushroom Act and Order violated its First Amendment rights by forcing it to
provide financial support to speech with which it did not agree.

The district court consolidated United
Foods' suit with an enforcement action brought by the United States against
United Foods and granted the United States' motions for summary judgment in the
consolidated cases. In an unpublished decision, the district court concluded
that Wileman Brothers was "clearly dispositive."

The Sixth Circuit reversed. 197 F.3d 221
(1999). The Sixth Circuit interpreted Wileman Brothers as holding that
"nonideological, compelled, commercial speech is justified in the context of the
extensive regulation of an industry but not otherwise." Id. at 224. Only in the
context of extensive regulation, the court explained, is there a need "to deter
free riders who take advantage of their monopoly power resulting from regulation
of price and supply without paying for whatever commercial benefits such free
riders receive at the hands of the government." Ibid. Because the mushroom
industry was not heavily regulated, the Sixth Circuit held that the mandatory
assessment for generic advertising and the portions of the Mushroom Act
authorizing such coerced payments were invalid under the First Amendment. See
id. at 224-225.

The Tenth Circuit has reached a
conclusion contrary to that of the Sixth Circuit, albeit in a case interpreting
(and upholding) the similar mandatory assessment provisions of the Beef
Promotion and Research Act of 1985. See Goetz v. Glickman, 149 F.3d 1131,
1138-1139 (10th Cir. 1998). In upholding a state program for promoting dairy
products against First Amendment attack, however, the Ninth Circuit took an
approach similar to the Sixth Circuit, reading Wileman Brothers to require a
threshold inquiry into the extensiveness of the regulatory scheme under which
the assessments are made. See Gallo Cattle Co. v. California Milk Advisory Bd.,
185
F.3d 969, 974-975 (9th Cir. 1999).

Many federal generic advertising
programs for agricultural products impose mandatory assessments on producers
but, like the program at issue in this case, are not part of comprehensive
regulatory schemes. As Gallo Cattle and the Gerawan decision described below
demonstrate, some states have implemented similar compelled agricultural
marketing programs. This case is of obvious interest to the sectors of the
agriculture industry that are subject to such plans. In addition, the Court's
ongoing struggle with commercial speech doctrine may make this case significant
to a wider group of businesses.

* * * * *

Our readers may be interested to learn
of Mayer, Brown & Platt's recent success in persuading the California
Supreme Court to invalidate, on state constitutional grounds, a compulsory
marketing program similar to that at issue in the United Foods case summarized
above. In the California case, Gerawan Farming, Inc. v. Lyons, S080610 (Nov. 27,
2000), we challenged a state marketing order for plums under the free speech
provisions of both the federal and state constitutions. Our client, a
family-owned farm that grows and sells a premium variety plum, objected to
paying for generic advertisements under the marketing order on the grounds that
they communicated the inaccurate message that all plums are the same. The state
trial court granted judgment on the pleadings to the State, reasoning that both
the federal and state constitutional issues were governed by the holding in
Wileman Brothers that a similar federal marketing order did not violate the
First Amendment.

We persuaded the California Supreme
Court to reject the Wileman Brothers analysis in interpreting the California
Constitution's free speech provision. Although the court held that it was bound
by Wileman Brothers to conclude that the state marketing order was
constitutional under the First Amendment, it refused to extend the reasoning of
Wileman Brothers to the state constitution. Finding that the "Glickman
majority's analysis lacks persuasiveness," the court accepted our argument that
the text and history of the California constitutional provision warrant broader
protection against forced funding of commercial speech. The court therefore
reversed and remanded for further proceedings to determine the proper standard
of scrutiny to apply and the results of that scrutiny. This groundbreaking
decision is one of only a handful of instances in which a state court has
interpreted the free speech provision of the state constitution more broadly
than the First Amendment. Michael McConnell argued the case and was assisted on
the briefs by Sharon Swingle.

The success in Gerawan reflects Mayer,
Brown & Platt's growing representation of parties and amici in the
California appellate courts, including in the state Supreme Court. Our ability
to provide that service will be enhanced by the opening of our new Silicon
Valley office in Spring 2001, with Donald Falk of our appellate group as one of
the resident partners.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and
comments on legal issues and developments of interest to our clients and
friends. The foregoing is not a comprehensive treatment of the subject matter
covered and is not intended to provide legal advice. Readers should seek
specific legal advice before taking any action with respect to the matters
discussed herein.

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